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AN OBSERVATIONAL EXAMINATION OF THE CONNECTION BETWEEN MONETARY AREA ADVANCEMENT AND FINANCIAL DEVELOPMENT OF NIGERIAN
ABSTRACT
This empirical study examined financial sector development and economic growth in Nigeria between 1981 to 2012. Secondary data on real gross domestic product (RGDP) was used as a proxy for economic growth; while financial development was captured by three variables; ratio of money supply to GDP (M2GDP), ratio of credit to private sector to GDP (CPSGDP) and real interest rate (RINT) which represented the explanatory variables were sourced mainly from CBN publications . In the cause of empirical investigation, various advanced econometric techniques like Augmented Dickey Fuller Unit Root Test, Johansen Cointegration Test and Error Correction Mechanism (ECM) were employed and the result revealed among others: That all the variables ware stationary at first difference except for real gross domestic product which were stationary at second difference, meaning that the variables were not integrated of the same order justifying co-integration and error correction mechanism test. The cointegration result indicated that there is long run relationship among the variables with one cointegrating vectors. The result of the error correction mechanism (ECM) test indicates that all the variables except real interest rate exerted significant impact on economic growth in Nigeria. The study concluded that Nigeria financial system is yet to be developed to its full capacity, hence there is need to adequately deepen the financial system through innovations, adequate and effective regulation and supervision, efficient mobilization of funds and making such funds available for productive investment, and improved services.
KEYWORDS: Financial system, financial institution, financial deepening, Economic growth, Nigeria.